By Maureen Flanagan
Jones Stephens Corporation, based in Moody, AL, is a leading designer, supplier, assembler and distributor of specialty plumbing components. The company offers the most extensive product line in the industry with some 9,400 individual units - nearly five times the number offered by competitors. Design improvements are continually incorporated into new and existing products, resulting in some 400 to 500 new product introductions every year. The company's wholesale, retail and OEM customers have come to rely on Jones Stephens for its national distribution network and superior customer service. As a result, Jones Stephens has been consistently profitable over the past decade.
American Capital Strategies, Ltd. (Nasdaq: ACAS) completed a buyout of Jones Stephens on November 4, 2003. To complete the transaction, American Capital provided $35 million of financing in the form of subordinated debt and preferred and common equity.
"Jones Stephens maintains the largest plumbing product and category offering in the industry, supported by strong product development and a culture of continuous improvement and unrelenting customer service," said American Capital Principal Frank Do. "The company's strong management team consists of industry veterans, most of whom have been with Jones Stephens since founding. Their demonstrated ability to manage growth is shown by the company's consistently strong financial performance over the past 10 years. They have been leaders in developing extensive Asian sourcing for a sizable percentage of their product line, making them the lowest cost distributor in their industry."
Jones Stephens was founded in 1992 by Butch Jones and Joey Stephens, industry veterans who pooled their collective 50-plus years of experience to create a unique company. Carving out their niche, Jones and Stephens avoided competing in products dominated by large well-known players with branded products, choosing instead to focus on products that are less visible to the end-user, but critical to a plumbing system. These include, for example, a product that connects a toilet to a house's plumbing system or the cover to a drain. Other products include fittings, gaskets, drains, a variety of tools, and specialty decorative items for bathrooms and kitchens.
The company provides a level of customer service unmatched by its competition, with a remarkably high retention rate among its top customers. Their loyalty is due, in part, to a next-day fill rate that exceeds 99%, with most orders filled within six to seven hours. (This compares to what can frequently be a two-week lag time for the competition.) The company also has a "no questions asked" return policy and is able to monitor customers' ongoing product and inventory needs to help maximize sales and speed up inventory turns. In addition, Jones Stephens' large product line eliminates customers' need to manage multiple vendors - an especially valuable advantage in a market that includes over 85,000 SKUs.
Jones Stephens operates as a "virtual" manufacturer, outsourcing all manufacturing except for certain light assembly. Outsourcing enables the company to identify, design, and introduce new products in less than six months without having to incur disproportionate overhead and capital expenditures. The company's supplier network includes over 200 domestic and international vendors.
Since Jones Stephens is neither tethered to an internal manufacturing process nor reliant on any single supplier, it can collaborate with multiple vendors, sales people, and customers to develop product enhancements and new introductions. It then leverages its extensive distribution network and market presence to bring these products to the market. One product recently introduced is Flow Easy, a drain cleaner containing sulfuric acid and buffers that make it the safest on the market.
The company markets most of its offerings under its Jones Stephens and PlumBest brands. It employs a diversified distribution strategy that includes wholesalers, retailers and original equipment manufacturers. Recognizing the growing popularity of the do-it-yourself market and the growth of "big box" retailers, the company has expanded distribution to retailers such as Home Depot and Lowe's. It has also developed exclusive vendor relationships with four major plumbing supply buying groups who collectively represent more than $4 billion in sales.
In the November 4, 2003 transaction, Union Bank of California, N.A. and Antares Capital supported the American Capital's investment with senior revolver and term loans. Jones Stephens' founders will continue to have a significant ownership stake in the enterprise. Jones Stephens joins American Capital's portfolio of companies, representing approximately $2 billion of investments in over 100 middle-market companies since 1997.
For more information about American Capital's portfolio click here.
Jones Stephens competes in the $8.4 billion plumbing equipment industry. Industry analysts forecast an industry growth of almost 4%, reaching $9.8 billion in 2006. Growth is driven by strength in new building construction and renovation markets. The trend toward larger houses with more bathrooms supports the demand for products such as fixtures and fittings. Added to this, commercial construction and home improvements are growing as well.
Jones Stephens is positioned to benefit from these trends. In addition to the depth and breadth of its product line, the company is committed to superior service and can deliver products more quickly than its competitors. New product introductions and a growing distribution network, which includes mass retailers and alternative channels such as the Home Shopping Network, also provide opportunities. Industry consolidation will likely provide additional impetus as wholesalers continue to consolidate their suppliers in order to become more efficient and profitable.
Jones Stephens continues to build on the successful parts supplier model introduced by the company's founders more than a decade ago - adding value to a wide range of plumbing fixtures, right down to the kitchen sink.
